By Miho Kurosaki
International NGOs have criticized Japan’s policy of building coal power plants at home and overseas while other developed nations pledged or legislated the end of coal power. Japan’s plan looks good on the surface, however the country’s largest power players had already decided to swap out those small plants for larger, more efficient ones. That won’t do enough to help get Japan to reduce 80% emissions by 2050 relative to the 2013 level, which the government committed to last year.
While it might seem like it’s the government’s task to reach that goal through more policy intervention, there are also plenty of incentives for businesses to make changes on their own.
Corporate carbon dioxide emissions are increasingly important for Japan’s big companies. A coal-heavy, high-emitting power grid directly impacts companies by driving up the emissions embedded in their products and services. Indirectly, it impacts their competitiveness as well. Japan is not an inexpensive place to manufacture; neither are places like Canada or France, both of which have a small fraction of Japan’s emissions intensity. That makes it easier to emissions-conscious companies on potentially relocating and lowering their operational carbon footprint.
Japan’s high emissions intensity is an even bigger challenge considering the country’s deep and broad role in global supply chains. Japan hosts many suppliers of global companies, and those suppliers depend significantly on companies with strong sustainability goals. An analysis by BloombergNEF finds that $72.5 billion of Japan’s corporate revenues come from global firms such as Apple, Microsoft, and Google, all of which have pledged to engage with their suppliers to meet their own sustainability and decarbonization goals.
It’s a powerful signal: if suppliers to these companies can’t meet the purchasers’ requirements, they’re no longer a supplier. Japanese corporations have tens of billions of dollars in revenue at stake. Only the U.S. has more.
There’s some good news for Japanese companies seeking to procure clean energy. A number of developers, including telecom giant NTT, are building new projects outside of the subsidy scheme. The most important is that procuring zero-carbon power directly from such projects is now an option for companies. Under the subsidy scheme, electricity from renewable energy projects cannot be claimed as clean since it’s paid by all electricity users in Japan unless it’s backed by renewable energy certificates with a price premium. Crucially, the economics of clean energy are starting to favor companies.
Another corporate driver of interest in cleaning up the country’s power supply is the ever-increasing importance of resilience, especially during the current pandemic. Resilience means diversifying one’s manufacturing locations—and powering them as cleanly and reliably as possible.
Japan is likely on a short list of potential locations for any high-value manufacturer, but those companies’ decisions to build in the country will depend on the country’s ability to withstand natural disasters and its commitment to decarbonization.
Of course, government and corporate action go hand in hand. So what can Japan Inc. do to further encourage the country’s decarbonization efforts? First, it can urge the government to set clear national targets for renewable energy when it revises the basic energy policy next year. Second, big companies can follow the lead of investor groups such as Climate Action 100+ and the Taskforce on Climate-Related Financial Disclosures, in quantifying corporate climate strategies. In the end, Japanese businesses may see decarbonization not as a potential cost, but as a competitive advantage in the global economy.
Miho Kurosaki is the head of Japan and Korea research at BloombergNEF.